Property tax aids are intended to replace property tax levies with state payments for local taxing jurisdictions. Property tax credits reduce property taxes with state payments for individual taxpayers. In both cases, the effect is that the property tax payer pays less than what the taxes would otherwise be on the property, and the state makes up the difference with state payments to the taxing district. The major tax relief programs are the homestead credit, the agriculture credit, referendum tax base replacement aid, county program aid and local government aid. Other smaller programs include disparity reduction aid and taconite aids.
Most school districts receive some level of aid under all of these programs except county program aid and local government aid, which are available only to counties and cities respectively.
Another major property tax relief program is the property tax refund. It does not reduce individual property tax amounts, but rather, provides refunds to property tax payers based on the relationship between their income and property tax amount. Property tax payers with low incomes relative to their property tax bills have a portion of their tax refunded. Renters are also eligible to receive a property tax refund based on the assumption that a portion of their rent is property taxes.
Homestead Credit
The market value homestead credit reduces the overall property tax burdens for homeowners, particularly for low-valued homes. The credit applies to all residential homesteads, including the house, garage, and one-acre of farm homesteads, and equals 0.4 percent multiplied by the market value of the property up to a maximum credit amount of $304 with the credit being phased out for home values over $76,000. The rate of phase-out equals .09 percent times the market value above $76,000, resulting in the credit being fully phased-out for homes valued at $414,000 or more.
Agricultural Credit
The market value agricultural credit reduces the overall property tax burdens for farmers, particularly for low-valued agricultural homesteads. The credit applies to all agricultural homesteads, but does not apply to the house, garage, and surrounding one acre of farmland, since that portion of the property benefits from the homestead credit. The credit equals 0.3 percent multiplied by the market value of the agricultural portion of the property up to a maximum credit amount of $345, with the credit being partially phased out for land values over $115,000. The credit begins to phase down between $115,000 and $345,000 in value. Agricultural homesteads with values of $345,000 and higher receive a credit of $230.
Referendum Tax Base Replacement Aid
Operating referendum levies are not assessed on agricultural land or cabins. In order to prevent the shift of tax burden for referendum levies from these types of properties to other classes of property, districts are paid referendum tax base replacement aid. Payments to school districts equal the amount of taxes cabins and farms would have otherwise paid for existing levies had they not been exempted, based on 2003 characteristics.
Source: August 2006 - Financing Education in Minnesota, 2006-07, Minnesota House of Representatives Fiscal Analysis Department (page 50).
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